Blockchain
So, what is blockchain in crypto? Blockchain is just exactly what it sounds like. It is a chain of blocks and each block consists of information on the transactions such as a set of transactions, a timestamp, and a unique identifier called a “hash.”
The hash of the previous block in the chain is also included in each block, forming the chain of blocks that gives the blockchain its name.
However, it is just like a digital ledger where it is almost impossible to make any changes or add any misinterpreted transactions.
Blockchain was invented by “Satoshi Nakamoto” whose real identity is still unknown. He launched the concept of blockchain and cryptocurrency in 2008 in response to the financial crisis.
The creators of Bitcoin saw the need for a decentralized and transparent financial system that could operate without intermediaries. To provide a secure and permanent record of transactions.
Despite its short history, blockchain has already made a significant impact on the way we think about technology. Its potential for future growth and innovation is immense.
Ledger
A ledger is a record-keeping system that is used to track financial transactions or other types of information. You can maintain a ledger in a physical format which is used to track the history of transactions, balances, and other relevant information.
Electronic ledgers are commonly used by businesses today, as they offer advantages such as faster and more efficient record-keeping. Which increased accuracy, and easy access to information for analysis and reporting.
In summary, a ledger is an important tool to maintain all the financial transactions of a business organization.
If we compare Ledger and Blockchain, it does have the properties of a ledger. But we must compare both tools briefly and understand their characteristics.
So, let’s briefly understand what is blockchain in crypto.
Blockchain vs Ledger
The main difference between blockchain and ledger is blockchain is decentralized which means it doesn’t have any regulatory authority. Blockchain is maintained by thousands of computers known as miners.
For once we can add fraudulent transactions to the ledger. But it is almost impossible to make any changes or add misinformation on the blockchain.
There are networks of other miners to verify those transactions and any person who makes fraudulent transactions can be easily detected.
Additionally, all participants in the network can view the public ledger that records all transactions on the blockchain, making it easier to detect and prevent fraudulent activities.
However, only the organization has access to the financial ledger, so blockchain is considered more secure than the ledger.
Although, we can’t say that blockchain is an exact ledger because it has its differences. The blockchain is considered decentralized and serves the sole purpose of recording transactions.
Meanwhile, Ledgers can be used for a wide range of purposes and it has different scalability characteristics.
So, you might be clear about what is blockchain in crypto.
The process of adding a block to a blockchain is called “mining” or “consensus.” When a transaction is made, it is added to the Candidate Block, which serves as a pool of transactions.
Miners use supercomputers to solve the mathematical puzzle created by the transactions.
The first miner to solve the puzzle adds the block to the chain and broadcasts the solution to the network The other nodes in the network verify the solution.
If it is correct, add the block to their copy of the chain. There are two ways a transaction is verified one is proof of work and the other is proof of stake.
However, now the question arises that how a network of blockchains dependent on consensus tackles the problem of dishonesty. Which acts as a hindrance to achieving consensus achievement.
It is solved by byzantine fault tolerance which is raised from Byzantine general problem.
What is the byzantine problem?
The scenario presents a problem where multiple generals are in charge of different portions of an army and need to collaborate to plan an attack on an enemy city.
Besides, the generals are communicating with each other over an unreliable network and some of the generals may be traitors who are trying to disrupt communication.
The problem is to find a solution that ensures that the loyal generals agree on a common plan of attack. Despite the possibility of malicious or faulty generals sending conflicting information.
This problem is used to illustrate how difficult it can be to achieve consensus in a decentralized system, where nodes may behave unpredictably or maliciously.
Byzantine fault tolerance is the response to its general problem which states the use of consensus algorithms, such as proof of work or proof of stake. Which allows the system to reach an agreement, even in the presence of faulty or malicious nodes.
It is important for applications such as blockchain technology, where the decentralized nature of the system requires a robust method of ensuring consistency and preventing data manipulation.
So we have understood what is blockchain in crypto and how it works let’s move to its advantages and disadvantages.
Advantages of Blockchain
- Decentralization
- More secure
- Transparency
- Immutable
- Efficiency
- Trust
These are some advantages of blockchain. Due to these advantages, many organizations have opted for the structure of blockchain in their industries one such example is Walmart.
Disadvantages of Blockchain
- Consumes a lot of energy
- Limited privacy
- Complex algorithms
- High set-up cost
- Ineffective
Blockchain also has lots of disadvantages, due to the complexity of algorithms and mathematical equations it takes a lot of time to add a block to the chain which ends up a lot of energy consumption on supercomputers and supercomputers require high investment costs.
Another concept that you should understand in the blockchain is Fork.
What is Fork?
A “fork” in the context of blockchain technology refers to a change in the rules or protocols of a blockchain network. Although, forks can have a significant impact on the blockchain community and can lead to the creation of new cryptocurrencies. There are two types of fork one is a “soft fork” other is a “hard fork”.
Soft fork
A soft fork is a backward-compatible change to the protocol that only requires some participants to upgrade their software.
This means both versions of the blockchain are available for the miners such as changes in the size of the blockchain, new rules, or fix of bugs.
Hard fork
A hard fork occurs and splits the blockchain into two separate networks, each with its separate leger and transactions.
This can lead to confusion and division among the participants, and can also impact the value and stability of the original cryptocurrency.
Wrapping up
Finally, we have discussed what is blockchain in crypto in simplified language. There are a lot of terms and definitions we need to understand to get into the depth of the crypto world and discover its technicality for beginners.
Stay tuned for upcoming blogs.
Dushyant is an enthusiastic and quick learner in all fields who likes to gain experience, loves to write, and works on his creativity. He loves to explore new things and information and has the potential to spread knowledge across the world. He believes in teamwork and helping others and has a strong belief in learning from our own life experiences and exploring more through our mistakes as everyone has a story to create. His hobbies include sports, drawing, learning new things, and a deep interest in geopolitics.
Nice informative